Gyroscopic Investing

I feel so stupid.

I started the PP in the worst possible time, following the advice of buying all assets at once.

Bought gold at 1600$. Bought VT which is moving sideways. All assets except cash are down, with gold leading the way and breaking support levels on a daily basis.

The stock portion (VT) does not seem to offset these losses at all.

Should I sell the entire gold stock allocation and wait for a better time to buy?

patience, my friend.

There are a number of threads with the issues of the folks who just started with PP, and you can check them out, but in summary the conclusion is always that you cannot sell any part of it. Once you're in PP, you're in, and now you have to wait for the 15/35 rebalancing points to sell something.

I bought in to the PP when gold was higher than that :p  I'd like it to go down even more, so that I can buy more of it.  Same with everything else.  I only want a bull run when I'm done putting most of my pay into investments...

Catacomb, my avg cost for gold is close to 1600 for a current gain of $0. When I bought coins for my family, it was even higher.
Gold may go below $1000. You never know.
Don't look too often, and if you have to look, don't do anything else. Don't sell.

It sucks, I know. But at least by buying many different asets, the pain has been offset a bit. You're only 25% gold! Imagine if you had bought 100% stocks and they fell 10% the following week (as happens many times a year). You'd be a wreck. Presumably your bonds have been doing well, right? I know mine have.

You could also find that tomorrow that the Euro problem causes a major currency event and gold goes crazy.

Or that economic numbers send stocks tumbling and bonds up.

Or that the stimulus spending finally takes stronger hold and stocks continue to go up while the other asset prices stabilize.

Etc.

You are almost always going to have an asset in the portfolio that is doing poorly. It's inevitable. That's what diversification will do. Gold could drop to $1000 tomorrow. We don't know. But it could. Then again, stocks could go up another 50% making the issue moot. This could be a year where stock investors are dancing in the streets, we just don't know. But that's how these things work. It pays to be patient.

If watching the assets by themselves is causing trouble (and it does for many investors), you might want a mutual fund. The same asset price movements will happen, but you just won't see them in the package. My personal solution to this problem is I just don't look at my portfolio very often. Most people would be shocked at how little I pay attention to it based on what I write about here/blog/book.

craigr wrote: Or that economic numbers send stocks tumbling and bonds up.

Very prophetic a day before I saw what was probably the biggest single day bump in LT's I've yet seen since I started the PP 3 years ago.

I think standard advice to newbies should be not to look at the portfolio for six months once you pull the trigger.

If you are an old fart like me nearing retirement I can feel your pain but if you have a longer horizon I wouldn't give it another thought. And selling when something is down is one of the worse investment mistakes you can make unless you are absolutely convinced that you bought into a dog that isn't going to ever recover. Can you really say that about gold?

Personally I'm rooting for gold to go in the toilet because hopefully that means we'll have some legitimate economic growth and stability.  The ups and downs of the last 5 years have left me worn out and frayed.

In any case, the gold portion of the PP causes me no worries.  It has plenty of upside and downside.  The LTT portion is what scares me.

It's always interesting to check into the forums to find that something bad has happened in the portfolio....

I forget to look otherwise.

I'm up 2.84% YTD.  What happened?

As a side note, I bought into the PP in Feb last year, which others have shown was the worst possible month last year to buy in.  I think I lagged the annual numbers by ~2%.  But I'm still up 6.69% total and 5.88% annualized; I would stay the course, it will smooth out after a few months.

LazyInvestor wrote: Once you're in PP, you're in, and now you have to wait for the 15/35 rebalancing points to sell something.

It's sorta like the Mafia: there's no leaving once you're in. 

Did not want to start a new thread to ask this question:

Both Gold and TLT sank today. In theory, these should be rather uncorrelated, one for inflation, the other for deflation. What economic event caused both to go down simultaneously?

BearBones wrote: Both Gold and TLT sank today. In theory, these should be rather uncorrelated, one for inflation, the other for deflation. What economic event caused both to go down simultaneously?

I seriously doubt an economic event caused them to go down.  More likely some news and emotional investors dumped.

Correlations or non-correlations only hold up over the long-term, BTW.  The long-term can mean longer than your natural lifespan in some cases.

EDIT: Oh, stocks rallied and Goldman said to dump gold.  There you go.

Market microscopes and the PP don't work very well when it comes to day-to-day market action.

If you find the PP's theoretical underpinnings appealing and if you find that it's past performance validates the soundness of these theoretical underpinnings, I would just try to relax and let the portfolio do its thing.

The market is like a casino and it is very much designed to separate you from your money.  The emotions you are feeling right now are exactly what countless market participants are hoping you will feel so that they can take advantage of your fear and lighten your wallet.  I would try to see through this and resist it as much as you can.  It's hard, though, I know.

BearBones wrote: Both Gold and TLT sank today. In theory, these should be rather uncorrelated, one for inflation, the other for deflation. What economic event caused both to go down simultaneously?

I don't think you can look at it that way.  On any given day anything can happen.  Everything could go up, everything could go down, or any combination in-between.  But if 2 or more of the PP holdings started moving in lock-step for an extended period of time (at least several months), that's when you should start wondering what's going on. 

Catacomb,

You probably feel even worse today, but hang in there.  I'm in about the same boat, having bought fully into the PP just a few weeks ago.  Just stay the course, and I'm sure everything will be fine in a few months.  The other parts of the PP will pick up the slack, and then gold will come roaring back at some point.  At least that's what I'm telling myself.

Definitely don't sell your gold right now.  That's the worst mistake you can make.

Probably the best thing you could do is just not look at your portfolio for a few months.  When you get back to it, you'll probably be surprised to see that the overall portfolio is doing just fine.  Be sure to look at the overall portfolio, and not just at one piece at a time.

Unless you have a crystal ball, I don't see any better alternatives than the PP.

So far, since inception of my PP on 6/1/2012, on an annualized basis, I'm seeing a gain of 4.7%.  If gold continues to drop and the other assets don't compensate, lower it will go.

Had a nice huge gain in gold in 2012, runup in Treasuries as well.  Not enough to do any rebalancing.

Then gold began its slide.    So, now I'm in the red on gold as of today -7.45% since inception, or annualized -8.5%.  Treasuries in the red as well since inception -4.3%.

Fwiw, some guy was on CNBC today saying gold will continue its slide for a while, but can't go below 1120, or so, because that's what it takes for the miners to get it out of the ground. 

My plan was to use this money as a test PP for a year.    We'll see how this looks the end of May.

Did buy some sector funds (health, media, real estate, emerging markets) two months ago and all are up nicely - average return 6.5% in two months, with another small gain today.  Watching those like a hawk and may sell them the end of this month - on the theory "sell in May and go away." 

None of this is money I need for a long, long time.  Indeed, watching the daily fluctuations is not helpful.

Ariadne22 wrote: So far, since inception of my PP on 6/1/2012, on an annualized basis, I'm seeing a gain of 4.7%.  If gold continues to drop and the other assets don't compensate, lower it will go.

Had a nice huge gain in gold in 2012, runup in Treasuries as well.  Not enough to do any rebalancing.

Then gold began its slide.    So, now I'm in the red on gold as of today -7.45% since inception, or annualized -8.5%.  Treasuries in the red as well since inception -4.3%.

Fwiw, some guy was on CNBC today saying gold will continue its slide for a while, but can't go below 1120, or so, because that's what it takes for the miners to get it out of the ground. 

My plan was to use this money as a test PP for a year.    We'll see how this looks the end of May.

Did buy some sector funds (health, media, real estate, emerging markets) two months ago and all are up nicely - average return 6.5% in two months, with another small gain today.  Watching those like a hawk and may sell them the end of this month - on the theory "sell in May and go away." 

None of this is money I need for a long, long time.  Indeed, watching the daily fluctuations is not helpful.

It doesn't sound like he understands how economics works, unless you're mis-quoting him.  The price of things isn't determined by how much it costs someone to make them, it's determined by how much someone will pay them for those things. 

Kriegsspiel wrote: It doesn't sound like he understands how economics works, unless you're mis-quoting him.  The price of things isn't determined by how much it costs someone to make them, it's determined by how much someone will pay them for those things.

Here's the video - Tim O'Brien starts at about 2:00:

http://video.cnbc.com/gallery/?play=1&video=3000161055

Says it will drop another $100/$150 over the next few months and then start up again.  He did say the floor on basis of miners is $1100-$1150.    I agree with you - willing buyer and willing seller determine price - so the logic on a gold floor is flawed using the production theory.  In any event, using his $100/$150, bottom would be $1350 which would might be a bit too conservative if GS is manipulating the market with their sell recommendations.

I really enjoyed that hot Australian chick

Nothing prevents the price of gold from dropping below the cost of digging it out of the ground.

If it drops below that level, people just stop digging it out of the ground.

I only just got an email from a buddy referencing the hit that gold took. I don't check numbers all that often so I pop over to yahoo finance and... holy crap! Gold got pasted today. But yea, to all the newbies, don't freak out. The worst thing you could do is sell into a panic. It just locks in losses. Who knows where gold will be six months from now? If the great bull market in gold is over then other assets will rise.  But they don't all do it with clock like synchronization. And if it's not then people selling into a correction will feel like idiots down the road.

Either way it's a (fairly) safe bet that the PP will hold up over the long run.

Ad Orientem wrote: Either way it's a (fairly) safe bet that the PP will hold up over the long run.

Depends on how one defines hold up. May not hold up nearly as well as a portfolio without gold. Or LTTs... Who really knows? In my mind, it is just more agnostic, less likely to lose a large % of assets in any dire market condition. That's it.

Here is where PP has its drawback. It lags the overall equity market when stocks are rising. The PP is defensive in nature. So if we are truly in a bullish stock market, treasuries, gold and cash will drag on your performance.

gonetowindsurf wrote: Here is where PP has its drawback. It lags the overall equity market when stocks are rising. The PP is defensive in nature. So if we are truly in a bullish stock market, treasuries, gold and cash will drag on your performance.

True. But is using equities as a baseline really sensible? The PP will also lag a 100% gold portfolio when gold is doing well or a 100% bond portfolio when interest rates are falling. A portfolio composed entirely of the current best asset will always deliver killer performance... but without the benefit of hindsight, how can we know what the best asset will be?